Monday, June 24, 2019

Alabama's 2019 Back-To-School Sales Tax Holiday is July 19-21

Hard to believe it, but Alabama's annual sales tax holiday for school-related items for 2019 will be here soon.  Set your calendar for July 19-21 this year.  For details on what goods are exempt, look here.

If you are curious which cities and counties are participating in this year's sales tax holiday, then check here.

Sunday, June 23, 2019

Alabama Department of Revenue Issues Guidance on Taxability of Software

The Alabama Department of Revenue recently released its initial guidance on the taxability of sales of computer software in light of the Alabama Supreme Court's decision in Ex parte Russell County Community Hospital (May 17, 2019).  The Department's initial guidance can be found here.

The Alabama Supreme Court's decision can be found here.

In the Court's plurality opinion, the Court held that the hospital was not entitled to the refund of sales taxes claimed on the purchase of computer software.  While the majority of the justices concurred in this conclusion, only two actually participated in the main opinion that also concluded that all software, whether canned or customized is subject to sales tax in Alabama.  That conclusion stands in contrast to the Court's previous decision in Wal-Mart Stores, Inc. v. City of Mobile, 696 So.2d 290 (Ala. 1996), in which it held that customized software was not subject to sales tax.  To be clear, the Court here, while refusing to distinguish between canned and custom software, did state that charges for services for "determining a particular software user's needs, designing and programming new software for a particular user, modifying or configuring existing software programs to meet a particular user's needs, installing software, and training users to operate software," if separately stated and invoiced, are nontaxable.

It remains to be seen how the Alabama Department of Revenue alters its longstanding regulation on this issue in light of the decision in Ex parte Russell County Community Hospital.  We expect that the Department will work in the near future to rewrite Regulation 810-6-1-.37, which currently indicates that customized software is not subject to sales tax.  So, stay tuned for more on this in the coming months.

Monday, January 7, 2019

Blake Madison Quoted in State Tax Notes Article

Recently, State Tax Notes published an article regarding the progress made in Alabama's judicial system in the handling of tax cases.  Rosen Harwood's Blake A. Madison is quoted several times in the article. 

For a look at the article, click here.

Wednesday, November 21, 2018

Alabama Court of Civil Appeals Confirms Denial of Sales Tax Refund on Software Purchase

In 2016, former Chief Judge Bill Thompson of the Alabama Tax Tribunal held that the taxpayer-hospital (Russell County Community Hospital, LLC) was entitled to a refund of the sales tax paid on the purchase of software that it contended was customized for its particular functions.  The hospital contracted with a well-known healthcare management company to provide the hospital with various computer software programs.  The vendor started with canned software, and then arguably customized it to meet the specific needs of the hospital.  The hospital paid sales tax to the company on the software, and the hospital and the company later jointly petitioned for a refund, which was denied by the Department.

In ruling for the taxpayer, the Tax Tribunal relied heavily on the Alabama Supreme Court’s decision in Wal-Mart Stores, Inc. v. City of Mobile and County of Mobile, 696 So 2d 290 (Ala. 1996), which held that unmodified, “canned” computer software sold to nonexempt customers was subject to Alabama and local sales or use tax.  Following that ruling, the Department issued Regulation 810-6-1-.37 (the “Regulation”), which the Department cited in support of its refund denial.  Judge Thompson found the Regulation to be internally inconsistent.

Paragraph (5) of the Regulation states that software is entirely exempt from sales tax if it is customized, but the same paragraph also states that only the itemized charges for customizing the software are exempt from sales tax.  The Department had denied the joint petition in issue because the charges to the hospital were not itemized between the canned software and the customized portion.  Judge Thompson added a footnote explaining that it is extremely difficult to determine whether software is custom or canned and that he would support the imposition of sales tax on all software.

Apparently relying on Judge Thompson’s footnote, the Department argued on appeal to the Russell County Circuit Court that sales tax should apply to the purchase of all software, whether canned or customized.  This position, if it had been adopted, would not only have removed the court‑mandated exemption for custom software, but would have also meant that the Department was disavowing its own regulation, which specifies that custom software is not subject to sales tax.

On January 26, 2018, the Circuit Court affirmed the Department’s denial of the refund request and thus reversed the Tax Tribunal.  The Circuit Court ruled that it was not custom software programming because the CEO of Medhost testified that none of the software was custom, rather the software was prefabricated and could be configured to a particular customer’s needs at their location, and the configurations did not require the dispatching of programmers to the hospital.  Importantly, the Circuit Court did not address Judge Thompson’s footnote or the Department’s new argument in support of imposing sales tax on all software.

The Alabama Court of Civil Appeals has now weighed in and its decision, found here, affirms the decision of the trial court.  Readers should carefully watch to see if this case is taken by the Alabama Supreme Court to further clarify its past rulings on the taxability of sales of computer software.

Monday, September 10, 2018

Alabama Court of Civil Appeals Upholds Scholastic Book Clubs Victory

The Alabama Court of Civil Appeals has upheld the decision of the Montgomery County Circuit Court that Scholastic Book Clubs, Inc. was not subject to Alabama use tax during the assessment period.  The Circuit Court had overturned the previous decision of the Alabama Tax Tribunal finding liability for Alabama use taxes.
The facts in the case are similar in nature to other Scholastic Book Clubs cases throughout the country.  In this decision, it is important to note that this is not a nexus decision, as one might assume.  First, it is notable that the Court focused specifically on the years at issue in the contested assessment, which were all pre-Wayfair.  Second, a careful reading of the opinion could lead one to conclude that the Court might have rendered a different decision had the Alabama Department of Revenue made some different arguments.  Instead, the Court concluded that the Department failed to present evidence that Scholastic Book Clubs’ activities subjected it to a statutory obligation to collect and remit Alabama use tax.  Thus, the Court determined that it did not need to address the issue of nexus.

Importantly, the Court specifically noted that it was not ruling on the “permissible reach of Alabama’s taxing authority under Wayfair….”  It also expressly stated that it was not ruling on the impact of the enforcement of the Department’s nexus rule beginning on October 1, 2018, which arguably would impose a tax obligation on Scholastic Book Clubs prospectively.  Those battles remain to be waged, no doubt. However, the Court avoided the temptation to wade into those issues given the facts and law before it.

In a post-Wayfair environment, given the facts in this case, it is entirely possible that the outcome could be different.
To read the Court's decision, click here.

Monday, July 2, 2018

Alabama's 2018 Back-To-School Sales Tax Holiday is July 20-22

Alabama's 2018 Back-To-School Sales Tax Holiday is July 20-22

After Alabama lawmakers decided last year to move up the dates to July, Alabama's annual sales tax holiday for school-related items for 2018 is set for July 20-22.  For details on what goods are exempt, click here.

If you are curious which cities and counties are participating in this year's sales tax holiday, then click here.

Friday, May 18, 2018

Alabama's 2018 Tax Amnesty Program Starts July 1

Alabama's 2018 Tax Amnesty Program Starts July 1

The 2018 version of the Alabama Tax Amnesty Program is almost upon us.  The Alabama Department of Revenue has recently issued a notice setting out the details of the program.  You can find the notice here.  The potential for a waiver of interest and penalties exists for participants in the program.

If you would like assistance pursuing amnesty under the 2018 program, which runs from July 1 - September 30, 2018, please contact us.

Alabama Tax Tribunal Rebuffs "Kill Quill" Efforts

On May 11, 2018, the Alabama Tax Tribunal entered an Opinion and Preliminary Order in Newegg, Inc. vs. Alabama Department of Revenue, Docket No. S. 16-613-JP, that serves as a significant blow to the Department of Revenue’s attempt to force out-of-state vendors to remit sales or use taxes to Alabama, at least for now.  The Tribunal’s Opinion makes it clear, as does long-standing Alabama case law, that while Quill is still the law of the land, and it still is as of today, substantial physical presence will be required to impose tax remittance obligations in Alabama. 

Readers should be reminded that the Revenue Department’s aggressive attempts to collect these taxes came at the behest of former Revenue Commissioner Julie McGee, who has been very fond of the mantra “Kill Quill.”  The current Revenue Commissioner, Vernon Barnett has shown no such tendency toward aggressiveness in this area and the Department has largely been silent on the issue since he took over the position.

Obviously, it is important to remember that the Tribunal’s ruling is specific to the taxpayer in this case.  However, the Opinion seems to clearly paint the picture that nothing has changed in Alabama with regard to the need for substantial physical presence, at least until the U.S. Supreme Court overturns Quill or Congress decides to finally take action on the issue.
A copy of the Opinion and Preliminary Order can be found here.

Friday, December 1, 2017

Proposal for More Road Money in Limestone County

The drumbeat for more money for road and infrastructure work in Alabama has been growing over the past few years.  Unfortunately, little, if any progress has been made on that front on the state and federal levels.  Recently, local jurisdictions have begun to realize that they will likely have to find ways to fund road work themselves.

A Limestone County Commissioner has a few ideas for increasing road work funding in his area.  To see more about his ideas, look here.

Dale County Judge Issues Injunction in Tax Dispute

A Dale County Circuit Court judge has issued a preliminary injunction barring local tax money collected in Dale County from being transferred to school systems in Dothan and Enterprise (located outside of Dale County) to fund students from Dale County attending schools there.  The injunction is in place until a January 10 hearing on the matter.

The Dale County Schools, Ozark City Schools, and Daleville City Schools filed the lawsuit after the Alabama Department of Education notified Dale County Revenue Commissioner Eleanor Outlaw that she should distribute some Dale County tax revenues to Enterprise and Dothan.

For more details, look here.